French pleads guilty to fraud

A somber Justin French pleaded guilty late Monday to two felony charges connected with a tax credit scheme that netted him million of dollars and fueled a lavish lifestyle of Range Rovers, multimillion-dollar mansions and frequent trips to Las Vegas.

French pleaded guilty to one count of federal wire fraud and one count of engaging in unlawful monetary transactions as part of a plea agreement with federal prosecutors. French faces a maximum sentence of 30 years in prison for a scheme that has left a wake of financial destruction and caused millions in losses for banks and even a former Washington Redskins player.

French previously served almost two years of hard time for gun and cocaine trafficking.

As part of his plea, French admitted that he fraudulently obtained between $7 million and $20 million in tax credits from state and federal programs by falsely reporting the amount of money he spent fixing up historic properties in Richmond. (Combined, the state and federal programs grant credits equal to 45 percent of a project’s qualified expenses.)

“Justin French stole millions from taxpayers to get rich and establish a prominent place in the real estate market in Richmond,” said Neil MacBride, the U.S. Attorney for the Eastern District of Virginia, in a prepared statement outside the courthouse.

MacBride said that the investigation is ongoing but would not comment further on the scope of where it might be headed. He would not say whether authorities are investigating other developers engaged in the tax credit program.

MacBride was joined outside the courthouse by Virginia Attorney General Ken Cuccinelli, who credited local, state and federal authorities with exposing the fraud.

“Stopping him and successfully prosecuting him has proven to be a stellar example of cooperation among state and federal enforcement,” Cuccinelli said.

As part of his plea, French waived his right to a trial and to appeal the sentence, which will be determined May 3. French also agreed to pay restitution for his crimes and to forfeit assets, including a sum of at least $7 million. According to the agreement, more funds might be demanded to cover the losses as the total value of the fraud is determined.

It’s not clear how much money French might have.

Recovered funds will be divided among state and federal treasuries and other victims as they come forward, according to MacBride.

French emerged on the local real estate development scene in 2005 and quickly developed a reputation as a flashy and big-spending character. Dressed in fine suits, he hobnobbed in elite social circles and began doing business with some of Richmond’s most respected firms.

During his run as a developer, French initiated tax credit applications on at least 35 properties, 19 of which were awarded credits. At the time of his arrest on state fraud charges in August, French had 16 projects pending, according to the criminal information document filed by the U.S. attorney general.

His run came to a crashing halt in August, when French was arrested at Richmond International Airport with a one-way ticket and more than $10,000 in his pocket. A week before, his office had been raided by FBI and IRS agents who took computers and boxes of documents into evidence. Prior to that, French made public his feud with the investor on his tax credit projects, Markel Corporation, and his intent to default on all the loans tied to those properties. (You can catch up on that in the story here.)

The charges to which he pleaded guilty pertain to the property at 1509 Belleville St. in Scott’s Addition, the same property on which he had artists paint in graffiti “Markel Blows.” French illegally obtained $555,976.35 worth of tax credits on that project, according to prosecutors.

French obtained a $1.06 million loan from First Market Bank to acquire and renovate the industrial property in March 2008. French emailed a bank representative stating that the property would require an estimated $200,000 in renovations. In a separate email to the same individual, who was not named, French stated that the property would generate approximately $600,000 in state and deferral credits. French said he would receive between $450,000 and $500,000 from his investors for the credits, which were Markel and California-based investment fund Foss Virginia 2007 LP.

The renovations included roof repair, repainting, new windows, updating bathrooms, upgrading electrical service, HVAC and lighting. The loan file contained seven invoices from City & Guilds, the general contractor for the project, which totaled just over $175,000.

In his tax credit application to state and federal agencies, French reported the final rehabilitation costs as equal to more than $1.3 million plus a 20 percent developer’s fee.

Along with the application to the state was a required letter from French’s accountant Clive Morey, in which he certified that he had reviewed the expenditures and that the expenses appeared to be valid. A source involved with the case said he believes French falsified invoices that he submitted to his accountant for certification.

The applications were approved, and French received state and federal credits of more than $707,000 in April 2009. French should have only reported expenses of $336,000 and received tax credits of $151,200.

French then sold the tax credits to his investors. On Feb. 17, 2009, investors paid the development entity $228,800 in exchange for the state portion of the tax credits, of which French transferred $218,000 to his personal account. The criminal information document states that French sold the federal credits as well but does not detail the transaction.

That particular fraud, and the others that are part of the overall scheme French admitted to yesterday, has sent massive ripple effects through the Richmond business community. The wake of foreclosures caused by French’s collapsing house of cards has also caused major losses for area banks, and his actions has led banks, investors and contractors to seek millions of dollars worth of damages in civil court.

22 Comments »

What about the other people and businesses that helped him perpetuate this fraud? When do they get theirs? He didn’t do this alone. Anyone who had a hand in this should also be prosecuted. How many countless businesses were ruined and people bankrupted due to this guy and his cronies? He is going to get off with a slap and the others will still be out there scamming others. Justice at its finest.

Harold, why don’t you await the sentencing until coming to any conclusions regarding “justice”. Moreover, why don’t you await the facts before rendering some utterly unfounded and uninformed conclusions about “others”
Unless you are an investigating agent w FBI/IRS you have no idea how the fraud was undertaken. Other than complete speculation what basis do you have for accusing others?

Hmmm. “David” seems to be somewhat defensive. It seems ironic that an individual related to the French fiasco is also named “David”. The array of people that were involved with the entire scam is far reaching. They know what they did. They are looking over their shoulders I’m sure waiting for the “French debriefing” to hit the desks of their attorneys. Stay tuned, one thing is for sure; the Feds do not come to see you without cause. Harold is correct in that French could not have accomplished this without assistance from the obvious players ie; contractor and architect. No one pleads guilty without a great deal of dialogue with the people you are pleading to. We shall see, “david”.

David, is correct, lets see how this plays out before jumping to any conclusions. Personally, it looks to me like French has a long history of operating on the fringes of legitimacy, and it’s all coming home to roost. I think you’ll find that a lot of people who operate this way aren’t actually trying ot get away with anything, they just figure they’ll be able to make it right in the end, but they run out of time.

Kind of like Vince Lombardi when he said his teams never lost a football game. They just ran out of time…

Dear Harold et al:
Don’t you have something better to do? I have NO doubt that J.French is guilty of this and much more, but before you go assuming you know who’s involved, couldn’t you just hang on to your golf clubs (or whatever) and wait to see what happens. Knuckleheads spreading rumors in tiny villages like ours just make the village smaller, and make the honest, sophisticated folks want to pack out. Take your clonazapam and RELAX!
BTW, I love everyone.

I agree with Harold. There is no way that Justin F. was able to pull this off on his own. In the best light the key players like accountant Clive Morey did not double check the validity of Justin’s estimated cost. As most people in the licensed real-estate and fair housing world will say, ignorance is not a legal defense. This episode should teach us to be more careful especially when using other people’s money. This fox hunt is long from over but we need to be carful before jumping to conclusions.

There is not a doubt that French is guilty.I find is upsetting that many honest people and businesses that feel the pain of these criminal actions.

I also agree that we shouldn’t jump to conclusions too quick. There are obviously other people and businesses that were playing a part in his illegal dealings; however, justice will come to them in time. Just like a cut rope—the ends will all start to frey at some point.

Harold is quite correct. There have been numerous partners and accomplices perpetuating this ongoing fraud; there is after all a reason these types of projects require lengthy paper trails and double checking by third parties before funds are distributed. French certainly seems to have succeeded in circumventing these fail safes to an astonishing degree, but there is simply no way he could have done that without the cooperation (forced, coerced or freely given) of others. That these individuals, who once proudly basked in the reflected glow of Justin French’s reputation, enjoyed sharing media attention with him and his “celebrity” status, and lined their own pockets with his ill-gotten gains at the expense of many honest, hardworking people, should now face no retribution for their own actions is indeed a miscarriage of justice. For the overall good of Richmond’s business community it would seem important that part of French’s plea agreement involves holding these partners accountable as well. If the prosecution does not in fact choose to pursue this, one can only hold out hope that Richmond Bizsense will continue to throw light on the situation so that the good people of the city can choose not to engage in business with these individuals.

What about Justin French’s partner in CitySpace Solar (now Urban Grid Solar) Blue Crump? Mr. Crump also did a lot of work on his commercial properties through his construction company called CitySpace Construction. How many contractors did work for French?

Those guys guys will not talk. They appear to have gotten paid. Its all the subs that were involved who got screwed. Look at the liens on the buildings. Not one from City and Guilds or Cityspace/Urban Grid/ or whatever. Just all the subs that they got involved. The two guys who partnered with Justin seem to have come out smiling. Wonder why? Gotta ask yourself what they knew and when?

Harold, as the owner of City & Guilds, I have read your running commentary on this message board for about 9 months now. I dont begrudge you an opinion on the entire French fiasco-howver, to quote Daniel Patrick Moynihan-“you are entitled to your own opinion, but not your own facts”

You and others (Ron Thomas, M Hagers, assorted others) write posts without regard to reality.
Your statement above, “these guys will not talk” is the latest, baseless post. In fact, I have “talked” with many people-Carol Hazrd from the RTD, Al Harris from Bizsense, Scott Bass from Style, countless lawyers and bankers, and most significantly I have “talked” extensively to IRS/FBI investigators. All of these discussions have been truthful replys to inquiries related to City & Guilds role (more accurately, lack of role) in the tax credit fraud.

Neither I, not City & Guilds has ever been a target of this investigation. Rather, we were a victim in the sense that our companies documents were fabricated to create costs which never existed. We have provided the most valuable information in this investigation by virtue of our audited financials, documenting the real costs on these projects.

Morevoer, if you actually checked, you would see that we in fact have an existing 154k lien on 3031 Norfolk. We lost much more than this, but were procedurally barred from filing liens on other properties because of the passage of time.

Im not sure what axe to grind you and others have with me and City & Guilds-but here is my cell # 539-5961. If you would like to “talk” to me, I’d be happy to. We have endured a very difficult year, watching and listening as we have been besmirched countless times through uninformed conjecture.

Did we benifit from a long term partnership with Justin, yes undoubtedly. Have I grown my company as a result of that relationship, yes absolutely. Did we ever at anytime participate in fraudelent activity related to this criminal enterprise, unequivocally no.

this is why there should be NO tax credits state or federal. you make it with your own money you work for by merit and through your investments with your money, and if you lose through your own bad deals, you suffer the los not taxpayers. all of this encourages collusion and cronyism, under the table relationships connected to private to state and federal officials.